ments, employers who now provide health insurance. are expected to pay out $125.3 billion in 1990. Under the Commission's recommendations their bill would be reduced by $12.8 billion, 10.2 percent lower than their projected health care costs. Reduced premium expenses for working spouses and other dependents (who would be covered by another employer) would save employers $19.2 billion. An end to pensated care and related cost shifting would save them another $9.5 billion; and the cap on liabilities another $1.5 billion. This saving would be partially offset, however, by the cost of additional premiums to cover part-time workers and their dependents ($4.8 billion), the cost of meeting the minimum benefit and premium standards ($9.3 billion), and $3.3 billion in increased tax liabilities, as tax-favored health expenditures decline. Year 1 Table 2-4 Phase-In Schedule and Cost of the Commission's Health Care Proposals Insurance reforms are initiated. (1990 Dollars) * All uninsured pregnant women and children to age 6 are allowed to enroll in the public plan (with lowincome subsidies), and current Medicaid recipients in those categories are transferred to the public plan. Reimbursement rates are improved relative to Medicaid rates. New federal cost......... Percent of Americans without health insurance. Year 2 Firms with fewer than 25 employees and average payrolls below $18,000 become eligible to receive a 40 percent tax credit/subsidy for the cost of health insurance that is provided. Employees of these firms with low family income receive a subsidy. Public plan is available to uninsured children up to age 18, with low-income subsidies. Public plan's and Medicaid's reimbursement rates are improved in accordance with Medicare principles. Firms with more than 100 employees are required to provide health insurance or contribute a portion of payroll to cover employees and dependents in the public plan. Additional federal cost from Year 2....... Cumulative new federal cost, Years 1-3......... Percent of Americans without health insurance. Year 4 If 80 percent of uninsured employees of firms with 25 to 100 employees (as of Year 1) are not insured through their employers, along with their dependents, all employers of this size are required to provide coverage or contribute to the public plan. Additional federal cost from Year 3........ Cumulative new federal cost, Years 1-4. Percent of Americans without health insurance. Year 5 If 80 percent of uninsured employees of firms with fewer than 25 employees (as of Year 1) are not insured through their employers, along with their dependents, all employers of this size are required to provide coverage or contribute to the public plan. Allow all uninsured adults into the public plan. Additional federal cost from Year 4. Cumulative New Federal Cost, Years 1-5. Percent of Americans Without Health Insurance.. $3.8-7.1 billion $ 27.4 billion c 0 d * Cost estimates are presented as if each phase were fully implemented in 1990. Costs are not adjusted to reflect inflation or cost containment savings. ⚫ Actual number depends on how many smaller firms voluntarily choose to purchase health insurance. New federal costs in Year 5 are greater than the full implementation costs of $24 billion. This is because of the additional subsidies to smaller employers during the phase-in period. Except for firms of 10 or fewer employees at extreme financial risk, these additional subsidies end not more than two years after Year 5. If the coverage targets are met voluntarily, the Secretary of Health and Human Services must submit to Congress a plan to insure any remaining uninsured. At that point (or in Year 5, if coverage targets are not met voluntarily), all individuals are required to have either private or public plan coverage. Employers who do not now provide health insurance coverage for their workers would be required to share the cost of the new coverage (see Table 2-7). Currently, of course, they pay nothing. The Commission's recommendations would require them to pay net costs of $27.5 billion. There would be $23.5 billion in private premium payments and $12.9 billion in employer contributions to the public plan. But this $36.4 billion bill would be partially offset by $8.9 billion in reduced tax liability, as tax-favored health expenditures increase. Total new costs, after taxes, amount to less than 4 percent of payroll. (The costs for small versus large employers are shown in Appendix C.) Impact on Employment-These costs to employers represent the short run impact of the Commission's recommendations. Over the longer run, costs attributed to employers fall on three groups: employers, employees, and consumers. Economists typically assume that required employer expenditures are borne by workers, in reduced wages. Wage reductions, however, are not possible for workers at or near the minimum wage. For these workers, the cost would be reduced employment. These reductions could come in layoffs, slower rates of employment growth, or failure to replace workers who leave their jobs. The degree of reduced employment stemming from expanded job-based insurance depends on the number of minimum and near-minimum wage workers affected, as well as the increased costs of providing insurance. With a cap on employer contributions set at 7 percent of payroll, the hourly wage of minimum. wage workers would increase by approximately 27 cents per hour. Under the recommendations, nearly 10 million workers working at or near the minimum wage ($4.25 per hour) would be affected. Recent surveys of the minimum wage literature indicate that each 10 percent increase in the minimum wage reduces employment by anywhere from 0.5 to 3 percent. 18 This research indicates the effect on adults is in the lower range. These estimates indicate that 25,000 to 50,000 low-income workers could be displaced by the coverage requirements-a number that is small enough to be offset by job creation through the normal workings of the economy. According to the Bureau of Labor Statistics, 39,000 jobs were created in June 1990. Over six million jobs were created over the previous three year period. nongroup plans, and out-of-pocket payments by individuals (see Table 2-8). Under the Commission recommendations, individuals would save $19.3 billion. Expanded employer and public coverage would save individuals who now buy insurance $16.3 billion in premium payments-$5.7 billion for job-based coverage and $10.6 billion for coverage obtained outside the workplace. Individuals would also save another $12.4 billion in reduced out-of-pocket expenses. These savings to individuals would be partially offset by increased premium payments by nonworkers to cover their contribution to the cost of the minimum benefit package in the public program. Costs to Government-State and local governments would save $7.4 billion under the Commission recommendations-the amount they currently spend on care for the uninsured over and above Medicaid spending. Limiting state contributions to the new federal program that replaces Medicaid would also relieve states of the growing burden for the medically indigent. The federal government would pay an additional $24.0 billion (on the assumption of a 7 percent of payroll cap on employer contributions) (see Table 2-9). Of the total federal cost increase, payments for the public health insurance of nonworkers would be the largest item, costing $11.0 billion. Augmented Medicaid physician and hospital payments for people currently covered by Medicaid are estimated to cost $4.0 billion, due to the changeover to Medicare reimbursement rates. The cap on employer health expenditures (assumed to be set at 7 percent of payroll) would cost about $5.3 billion. Payment of premiums and cost sharing for workers with family incomes below 200 percent of poverty would cost $4.1 billion. Tax expenditures would grow by $5.6 billion as tax-favored health insurance expands. Partially offsetting these costs would be $6.0 billion saved as job-based coverage assumes costs now paid by Medicare, the federal share of Medicaid, and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)—for military employees and their dependents. Impact on the Private Insurance Market-The jobbased private insurance market would expand under the Commission's recommendations. The scale of the expansion would depend heavily on the percentage of payroll cap set on the employer's contribution to the public plan. The lower the cap, the more numerous the firms that would choose coverage under the public plan and the fewer the firms that would seek private coverage for their workers. The Commission explored a range of options and, for estimating purposes only, used a 7 percent cap. At that level the numbers of workers brought into the public plan would be approximately equal to the number brought under job-based private insurance (24 million and 26 million, respectively) (see Figure 2-1). Currently, 145 million Americans are covered by job-based private plans. Under a 7 percent of payroll cap, this number would rise to an estimated 171 million. If the cap were set lower, at 5.6 percent, for example, the number of private policyholders would still increase, but substantially less, to 151 million. If the cap were raised to 8 percent, 31 million additional individuals would be covered under private plans, raising the total of privately covered individuals to 176 million (see Table 2-10). regardless of when and where the care is provided or who pays for it. And it would respond to insurers, employers, consumers, and others in the health care system who are seeking ways to obtain information on quality of care. 1. The Commission recommends development and implementation of national practice guidelines and standards of care, already begun by the newly created Agency for Health Care Policy and Research. Physicians and physician organizations should be widely utilized in developing and reviewing the practice guidelines and parameters. The Commission identifies as critical to a national system of quality the development of medical practice guidelines from research on necessity, appropriateness, and effectiveness in health care. The Commission does not intend these to be rigid instructions for a given condition. Rather, it envisions guidelines that outline the range of appropriate tests and procedures for a given clinical situation. Ideally, guidelines are developed by synthesizing a broad array of medical information, including scientific studies, available data, and expert opinion. The more uncertainty there is as to appropriate practice, the more room guidelines should leave for flexibility and variation. Under guidelines, physicians, of course, remain responsible for tailoring the treatment to what is most appropriate for the given patient. The goal is to prevent unnecessary or even harmful service use (observed in such areas as Caesarean deliveries or coronary bypass surgery) and to promote the use of necessary care. The Commission recognizes that development and implementation of guidelines raise a number of issues. First, development of guidelines would require additional information on medical care effectiveness and a process to translate that information into guidelines. To be effective, that process would set priorities, allow for review and testing, and provide for dissemination of results. But simply developing the guidelines and making them public would not, by itself, ensure quality. Alternative strategies would also have to be explored for encouraging physicians to accept them and change practice patterns as needed. Finally, the guidelines and standards would have to be incorporated into effective programs for assessing and ensuring quality of care. The Commission believes that the implementation of practice guidelines would reduce unnecessary, inappropriate, and ineffective care. Over time, it may also produce some savings to the system. Estimates |